Private sector growth in the eurozone remained fragile in February, with inflationary pressures escalating, according to the latest data.
While Spain and Italy showed stronger-than-expected performance, France’s activity contracted, and Germany experienced only marginal expansion, putting the European Central Bank (ECB) in a difficult position regarding its anticipated rate cut.
The eurozone’s economy barely stayed in positive territory, as private sector activity showed only minimal growth in February, maintaining just enough momentum to remain in expansion territory. Meanwhile, inflationary pressures continue to rise, leaving the ECB grappling with the situation ahead of its expected rate cut this week. The eurozone’s Composite Purchasing Managers’ Index (PMI), which tracks private sector activity, remained steady at 50.2 in February, unchanged from January, according to flash estimates from S&P Global.
While a PMI above 50 indicates growth, the index’s marginal increase shows that the region’s recovery is fragile. The services sector, a key contributor to the eurozone’s economy, showed signs of weakness as the Services PMI fell to 50.6, down from 51.3 in January, slightly missing expectations of 50.7. This slowdown was partly due to a renewed decrease in new business, marking the first drop in demand since November.
A weaker demand for exports also played a role, although the decline was the mildest in seven months. Inflationary pressures remained persistent, with service providers raising prices at the fastest rate in ten months as they passed on higher input costs to customers. Overall, input cost inflation surged to its highest rate in nearly two years, signaling concern for the ECB.
Looking at individual countries, the economic performance across the eurozone’s largest economies showed significant differences. France’s private sector continued to contract, with its Composite PMI dropping to 45.1 from 47.6. Services activity also saw a sharp decline, with the services index plunging to 45.3 from 48.2. In Germany, activity grew, but only marginally, with the Composite PMI slipping slightly to 50.4 from 50.5, below expectations. The country’s services sector also slowed, with the Services PMI falling from 52.5 to 51.1, missing forecasts.
Business confidence was also fragile, with companies citing political uncertainty in France and Germany, as well as a global economic climate that does little to support consumer spending. “This may be the result of an unsolved political crisis in France, while in Germany the elections may raise hope for a stable government to be formed soon,” de la Rubia said, highlighting the sharp divergence in economic performance across the region.
In contrast, southern European countries showed resilience. Spain’s Services PMI jumped from 54.9 to 56.2, exceeding expectations, and Italy’s services sector posted stronger-than-expected growth, rising from 50.4 to 53.
